[Good Morning Stock Market] Leaning on US rebound after enduring 'worst inflation'... Volatility inevitable despite pullback

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] On the 14th, the domestic stock market is expected to start higher, buoyed by a rebound in the U.S. stock market, but volatility is anticipated during the session. The direction is likely to be determined by variables such as the won-dollar exchange rate. While still burdened by high inflation indicators, the economic recession is also expected to stimulate volatility.

'Worst Inflation' Ends with Sharp Rebound, New York Stock Market's 'Unstable Rally'

The New York stock market plunged sharply after the September Consumer Price Index (CPI) exceeded expectations but managed to close higher after a rollercoaster ride with a sharp rebound. It endured the worst inflation. On the 13th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 30,038.72, up 827.87 points (2.83%) from the previous session. The Standard & Poor's (S&P) 500 index rose 92.88 points (2.60%) to 3,669.91, and the tech-heavy Nasdaq index closed at 10,649.15, up 232.05 points (2.23%). The S&P 500 ended a six-day losing streak and rebounded for the first time in seven trading days.

That morning, the New York stock market started sluggishly after the U.S. Department of Labor announced that the September CPI surged 8.2% and the core CPI rose 6.6%. The core CPI, which the Federal Reserve (Fed) considers a more accurate inflation gauge, rose at the fastest pace in 40 years, fueling expectations that the Fed would implement at least another 'giant step' (a 0.75 percentage point rate hike) in November. However, investors who judged that the recent consecutive sharp declines had already brought stock prices close to oversold levels switched to buying, causing major indices to surge sharply afterward. The Dow Jones fluctuated about 1,400 points intraday, and the S&P 500 showed its largest daily volatility since March 2020.

However, the rebound is also seen as an 'unstable rally.' Market volatility remains high, suggesting the possibility of another sudden plunge at any time. Jamie Dimon, Chairman of JP Morgan Chase, stated at the International Institute of Finance (IIF) annual membership meeting held in Washington DC that if a 'severe recession' scenario is assumed, the market could fall 20-30% more than it is now.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, said, "As investors digest inflation data and the earnings season begins, stock market volatility will continue," adding, "There are still many factors that can cause volatility." Greg Swenson, founding member of investment bank Brigg Macadam, warned, "Getting excited about the current rally could be a mistake," and advised preparing for greater volatility, saying, "It is closer to a bear market rally, and worse news is yet to come."

Seo Sang-young, Researcher at Mirae Asset Securities

Although the U.S. stock market's Nasdaq fell more than 3% sharply in the early session due to the release of high inflation data, it rebounded more than 5% from the low after digesting the news, which is expected to have a positive impact on the Korean stock market. In particular, while inflation remains at a high level in the short term, the emphasis on inflation being controlled in the future due to demand slowdown is positive.

Additionally, the partial easing of concerns about the UK, which was one of the causes of recent global financial market volatility, is also positive for improving investor sentiment. This is because it is a factor for dollar weakness. Furthermore, considering the expanded decline during the simultaneous auction on the previous day's options expiration day, a rebound inflow is possible, which is also positive. However, the approaching timing of the economic recession is a burden. Taking this into account, the Korean stock market is expected to start with about a 1.5% rise and then determine its direction depending on changes in the dollar.

Meanwhile, the Korean stock market fell the previous day due to large-scale net futures selling by foreigners on the options expiration day. In particular, concerns about a global economic recession and high inflation in the U.S. were highlighted, leading to continued selling pressure. Although foreign buying continued mainly in the semiconductor sector, showing strength in related stocks, sectoral differentiation also progressed, with the software sector's decline expanding. The KOSPI fell 1.80%, and the KOSDAQ dropped 2.99%, reflecting concerns over deteriorating earnings in gaming stocks.